What is CIS?
CIS is the Construction Industry Scheme; it governs how contractors in the construction industry handle payments to subcontractors for construction work. The scheme applies to a wide range of construction work to include: building, alteration, repair, demolition, installation of heating, lighting & power systems, painting and decorating.
CIS contractors are required to register with HMRC as a contractor. Subcontractors are required to register as a subcontractor. HMRC will determine whether a subcontractor will be registered at 20%, 30% or gross status. When a contractor pays a subcontractor they are required to deduct advanced tax at the applicable rate – the net amount is paid to the subcontractor and the tax is paid to HMRC.
Before commencing a working relationship it is important that the contractor verifies the subcontractor’s status with HMRC.
The CIS period runs from the 6th of each month to the 5th of the following, in line with a payroll month. Returns must be submitted by the 19th of each month. Liabilities become due when the contractor pays the subcontractor. Contractors are required to provide subcontractors with a CIS certificate as evidence if the tax deduction.
Can CIS be offset against other tax liabilities?
In short, yes
- Subcontractors who complete self-assessment tax returns must report their CIS deductions on their annual return. The tax already deducted is considered when calculating the final tax liability. Depending on the tax status of the individual a balancing payment or refund may be due.
- Subcontractors who are companies should offset their monthly CIS deductions against their monthly/quarterly payments to HMRC. Any deductions not used can be carried forward to future periods. Companies cannot offset deductions unless they receive a certificate from the contractor. Only companies can offset deductions – not available to partnerships.
CIS & VAT – how does it work?
- If CIS subcontractor & contractor are both registered for VAT, the reverse charge mechanism applies to supply of labour – this is selected as ’20% RC CIS’ on QuickBooks
- If the subcontractor is registered but the contractor is not and the supply falls within the scope of CIS it is generally treat as exempt supply for VAT purposes
Can QuickBooks help to prepare & submit a CIS return?
Yes – QuickBooks can help you prepare and submit CIS returns digitally to HMRC.
For further guidance on CIS, applicable tax deduction rates or how QuickBooks can help with preparation then contact PGR Chartered Accountants on 028 9078 8880 and speak to Jonathan or Lee today.